tv Tonight From Washington CSPAN July 14, 2011 8:00pm-11:00pm EDT
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>> as debate on extending the debt ceiling continues, congressional leaders, including house minority leader nancy pelosi met with reporters on capitol hill. this is 20 minutes. >> good morning. >> good morning. >> we are back on schedule. day 191 of the republicans in the majority and still not any serious legislation on the floor to create jobs. any conversations with the american people will tell you that that is their top priority. yesterday i had the privilege of meeting with college students and some newly graduated from college to see what their take was on the budget talks. this budget is a ten-year budget and takes us well into the future. these young people are the fought chur. they own the future. i want to know what they were thinking. it was very inspiring to hear them talk about wanting to pay their fair share to reduce the
deficit. it was inspiring to hear them say how they, of course, were support of the pell grants, some of the them beneficiaries of it and concern they had for themselves or for some of their classmates who would not be able to afford college if the pell grant or loan program costs more. they appreciate it, the fact medicare and medicaid enabled their families to have the freedom to help them get an education. as i say, jobs, jobs, jobs. any of you who are young and many of you are or any of you who have family members who are in college or in school and know that the prospects for a job is very important to them. they express support for public institutions, many of them in elementary, secondary and college. in public institutions, the reliance on libraries along the way. it was beautiful.
it was an appreciation of our country from our young people who known the future. it wasn't about politics. it was about values and priorities. i told them i would take their message to the table that evening, later that afternoon. and i did. it was stunning, though, to see the contrast between the wisdom of youth, knowing how important the education of the american people is to not only their personal self-fulfillment to the competitiveness of our country. and to see the republicans fighting to increase -- imagine this -- they were fighting to increase over $30 billion the cost of student loans to students, putting those students in the red without charging one red cent to corporation that's
send jobs overseas, raising taxes for corporations sending jobs overseas. tax cuts to big oil. tax breaks for people not paying their fair share. not one red cent from any of those special interests from those who should be paying their fair share. again, jeopardizing the opportunity for education for these young people. it's really a stunning thing. people should know about it. our young people would not approve of it because it hurts their prospect and our country's competitiveness as they volunteer to say we will do our share to reduce the deficit. they hoped and we all do that whatever is done at that table will not impede economic growth. as you know, we're engaged in these talks about listening -- i
don't know how much evidence a wise person would need to know that it's important for us to remove all doubt that we would have set that ceiling. 191 days, no jobs still in sight that's worth its salt. yet dealing recklessly, dealing recklessly with our economy, recklessly by even the thought that the debt ceiling would not be lifted. you see what some of the rating agencies have said, moody's and i don't know if standard & poors is public yet about our credit rating and that's important. but what is really important to make is families and what it means to them around that kitchen table. how interest costs for them on their credit cards and mortgages and car payments. if they're senior, maybe not get a social security check, a veteran not getting their benefits, even our men and women
in uniform could be in jeopardy for getting their cherks. if we do not lift the debt ceiling very soon. this is personal. this is personal. the impact that it has on america's families. this is one time when that kitchen table and boardroom table have a shared concern. over 400 c.e.o.'s have written letters saying that it's absolutely essential that we lift the debt ceiling to our country's economy, to our reputation, standing by our full faith and credit. so it is a very interesting time. i close and take your questions by saying what is happening at that table, not only -- even just by that one example, not one red cent ask for
corporations stoned jobs overseas, let's not change that by one red cent as we want to charge by tens of billions of dollars more ninet for america's students who receive student loans. as some of us discussed earlier this week, these discussions take heavy toll on women. if they do not come out right. women understand the need for social security, for medicare, for medicaid. they are beneficiaries and even before then, they are caregivers and they are responsible for much of the care in their own families, for young people we talked about that. i would commend the president have i never seen -- job is no place compared to this president in terms of patience. doesn't even begin. this president has demonstrated a level of patience not only during the meeting but as
respectful of the suggestions that are made by all parties at the meeting in his preparation for the meeting and his coming back to address concerns that are expressed by others. day in and day out the president has respectfully listened, accommodated, engaged in the conversation in a very informed way and the president of the united states, i know he's busy, i mustself am almost too busy to continue listening to some of the things going on in that room. so i know he must be very busy. the only thing i hope he doesn't ask us to do is go to camp david. that goes beyond the pail. i want them to be the preserve
the president can go to renew, study, prepare for the next week. i want it to be the place where president takes heads of state to close out all other concerns and stay focused on resolving a global problem. i don't want it to be a place where it doesn't have to continue to listen to some of this stuff. >> kind of like smorse? >> s'mores in california are big for us. i have five children and grandchildren. s'mores are big for us. i would rather have them at home. so -- who hasn't had a question the past couple days? you? >> you talked a little about kind of the mood in the room and how you're getting kind of get up with some of the discussions -- >> we are set up. i'm saying the president has more patience than job. i don't compete with him in that regard. >> the meeting when it broke down yesterday and president slammed back his chair and stood
up and said, see you tomorrow. i'm wondering if you can talk about generally the mood of the meeting last night throughout the whole thing and what happened yesterday? >> i don't understand the problem is if the president of the united states after a meeting over two hours stands up and says see you tomorrow. that's how meetings with president's end. you don't leave first. the president leaves first. so that was completely appropriate, unless somebody in the room thought he or she should have the last word and start the exit from the meeting. but that would be i think a breach of protocol. >> you talked about -- >> this is your third day in a row. >> we're all -- seriously, you just ticked off moody. impact on children, women and families. at what point do these things spur you to -- to really get to a sense of compromise? you joked about camp david but
when you got -- when you go into a whole role, pot of coffee, maybe go to camp david and not leave until there's a deal -- >> that's what we're doing right now. that's what we are doing. we start -- we left the meeting on thursday. wleft the meeting on thursday with the idea that we were going for the big plan, which i fully support and commend the president for. the grand bargain, the big plan. so much can be accomplished in that way. great deal of debt reduction can take place over a long period of time with the certainty that the market's need and our america's families deserve. and then sunday the idea well the grand plan might not be as easily achieved as we had hoped, not easily but as possible as we had hoped and so the president still wants that and i agree with him. we should still have that. be very important or be a major
accomplishment. but if the republicans don't want to go to that place, that's what we have been doing every day in a very objective way going over each of the provisions whether it's -- well, i'm sure the white house has put out what the agenda said. that's what we had been doing. but the fact is that it's -- i agree with you, it's time to freeze the design. what is it we can agree upon, and let's get on with writing the bill? but let's not say well, we don't have to make any decisions today on thursday or friday because we're going to have s'mores at camp david over the weekend. and i would be real careful about giving up so much coffee, too.
you just said -- this may come as a surprise to you. this may come as a surprise to you, but let's try it. when you go to the meeting with the president of the united states for two hours, or an hour and a half each day, that means he and his staff, you and your staff, are preparing for it and you come out of that meeting and you act upon what research you need to do to answer the questions that may have arizin. so it's not about the time -- that's like the tip of the iceberg. this is a major, major commitment and that's why i think the president deserves tremendous credit for the respect that he -- the time he has taken, more important than that, the respect he has given to everyone's ideas to come back in a very palatable, only to the nth degree himself. he's not asking staff to answer the questions except when it's going to be a long secretary
geithner, tell us what the impact is of this. he knows what that is but he has others answer. so a two-hour meeting is a ten-hour involvement. and that's what we are doing. if location is the issue, i think we're all pretty accessible in those meetings. what i don't want to see is any delaying tactics that would prolong the writing of legislation because that's what it will take, legislation in order to get this done. so as far as i'm concerned, i don't know what's different thursday than sunday. let's just decide one way or another on -- >> eric cantor told reporters last night that he offered an option of breaking the vote into two separate votes and the president issued a veto threat on that. does this mean the only option left is $2.4 trillion plan through the end of next year? >> any idea that we would
instead of conveying confidence to the markets, to our creditors, most importantly, who -- to the person people -- american people who depend on those checks, social security recipients, veterans. also those whose interest rates will be affected around that kitchen table, any suggestion that says we're going to end this for a little while and then we're going to start all over again, i just not think worthy of the american people. >> specifically on medicare cuts -- >> i'm right there. >> you have been on the record cutting them three years now. >> i don't think it's true at all. everybody says i say every dollar we spend in the federal government should be subjected to the harshest scrutiny -- defense, social initiatives, whatever it is. to make sure the taxpayer and
the consumer -- the taxpayer as a taxpayer but also as a consumer of services is getting what intention was originally of that initiative. but there are some things -- and we did some of it in our affordable care act, to cut costs in medicare and we always stand ready to do that. but not to cut benefits for seen yors and others who depend on medicare and social security. that is a fight that is our fight. >> and a back-stop plan before you can reach the deal, what do you think about that plan and essentially handing control of the president's -- >> i think what leader mcconnell has advanced is it is recognition that we must lift the debt ceiling. and for that reason it has that value. the particulars of it, i think that's a discussion that the
senatorless have about whether that's something that can pass or what. but i think everyone who's concerned about lifting the debt ceiling is saying, bravo for senator mcconnell to say this must be done. yes, sir? >> do you think you had an issue with tarp where you failed one day and passed two days later, what will break this? do you need to see markets drop 400 points? >> no, i don't need to see markets drop 400 points but the republicans may need to see markets drop 400 points. since you brought up participate, you recall we went into tarp probably the worse vote we ever asked members to take. stiff competition for it that horn but from their standpoint, worst vote they ever had to take. president bush's problem. president bush's solution. we improved it by saying the taxpayer had to be made whole and the taxpayer is being made whole. but we said we will get 120 votes, you have to get 100 votes
and they said they had 100 votes. they had, what, 60? we had 145. we had more than 2-1 over what they had when we went to the floor. and then a couple days later we brought it back and increased our democratic number. we never -- as long as we all shall live and beyond, they will never have 100 votes on the tarp on the republican side sofment that shows some level of irresponsibility because swroted for the tarp, not because we approved of how we got there or the cost that it would be but because it had be to be done to keep our country from a financial crisis. here we are again. so we will see what sense of responsibility people have about doing it and doing it to get it done, not to kick the can down the road so we could go to meetings at the white house or have s'mores someplace, but just to get the job done and make the
tough decisions that have to be done. everybody has to yield. but the time is just growing short. i think that there again is no reason we can't at least evaluate by the end of the meeting tomorrow what a possible piece of legislation is to go forward if -- if the republicans truly believe that we must -- we must lift the debt ceiling. i was going to juggle these two pennies for you. i should juggle three pennies. the staff thought it would look gimmicky. one red cent. corporations sending jobs overseas, over $30 billion to put america's college students and graduate students in the red. it's stunning, it's a stunning thing. in their budget, we want to eliminate medicare.
we have seniors pay more to give less and give tax subsidies to big oil. put place in doubt whether seniors could be in nursing homes under medicaid so we can give tax cuts to corporations sending jobs overseas. we will increase the cost to america's students, to the tune of billions of dollars while we give tax breaks to the wealthiest people in our country. i don't think it's a reflection of the values of the american but it should be the reflection of our american values. thank you all very much. >> thank you. >> senate majority leader harry reid responded to yesterday's white house meeting and role of house majority leader eric cantor. >> mr. president, there are some in the republican party who will not listen to the truth no matter who speaks it. this is my opinion. if we allow this nation for the first time in its history to
default on our national possible gations will no not only be a black market on our reputation but financial disaster that will sweep the world in a global recession. but it's not my opinion alone. have i come to that belief by listening to some of the most respected voices in the business community. defaulting is, i quote, a risk our country must not take. they're not the only ones who believe that is true. the most respected bankers have said it, jpmorgan chase, the default would be catastrophic. investors have said it. bill gross, one of the world's largest fund managers send us a warning yesterday. he said, quote, there should be no question at all, the debt ceiling must be raised and not be held hostage by budget negotiations. don't mess with the debt ceiling in washington is what bill gross said. ben bernanke, appointed by
president bush as chairman of the frv said default would be a major crisis that would send shockwaves to the world financial markets. yesterday he said failure to avert default would mean huge financial calamity. even other republicans have said it. this is what speaker boehner said in april, quote, not raising the debt limit would be serious, very serious. implications for the worldwide economy and jobs here in america, end of quote. and perhaps the most telling of all, all three rating agencies have already sent warning shots across our bow. last night moody cautioned us america's a.a.a. rating, triple a rating, was already under review for downgrade. never in the history of the country has that happened so where we are being reviewed to downgrade our debt rating. we have just three weeks left until we miss our first payment. they cited that, quote, rising possibility we will default.
they said that we would lose this crucial rating, which saves every american money every day even before we miss a payment. standard & poors said congress and business leaders that even if the united states keeps paying creditors but delays payments such as social security, our veterans benefits, they would cut our rating. and fitch has said default would, quote, threaten a still fragile financial stability in the united states and the world has a whole, close quotes. so why are some republicans in congress still saying that a first-ever default on our nation's financial obligations would be no big deal. when every financial expert, investor, business leader and banker in the country and even every reasonable member of your own political party is telling you the consequence of default would be catastrophic, it's time to start listening. why? because default won't just royal the financial markets pushing interest rates higher and tank the stock markets, they will
affect every american's wallet as well. there are few thing that's would happen. social security checks and veterans' benefits and paychecks to our troops would stop. some of the most vulnerable americans would be placed at risk. our promise to the men and women who protect this nation so bravely and those who protect it today would be broken. we would not be able to make payments to our military. payments on our national debt crowo stop. american investments and retirement accounts would be decimated. millions of americans could lose their jobs. interest rates would rise not only for the government but for ordinary americans as well. those americans will pay more for their mortgages, more to use a credit card or buy a car or finance a university education. they will pay more for electric bills, groceries and gas. spike in interest rates and damage the united states dollar amount would cost the average american family more than $1,500 immediately. it would be the most serious financial crisis the country has ever faced and would come at eye
time when our economy could at least afford it. and in the long run cost the government not millions, not billions, trillions of dollars. in fact, republicans shouting about the debt failed to mention. for every 1% increase in interest rates will cost our nation 1.3 again not million, not billions but trillions. for every 1% increase in interest rates it will cost this nation 1.3 trillion dollars. so much at stake. even speaker boehner, minority leader mcconnell seem to understand the seriousness of this situation. they're willing to negotiate in good faith, which i appreciate. and the country appreciates. meanwhile, house majority leader eric cantor has shown he shouldn't enbe at the table and republicans agree shouldn't be at the table. one republican told politico last night at publication, quote, he lost a lot of
credibility when he walked away from the table. he was childish. end of quote. what's that all about, mr. president? we had negotiations going on in the room, 219, a short jog from here. and he's walking out on the meetings with the vice president of the united states. it was childish. another republican said cantor is putting himself first. he said this, quote, he's all about ed, end of quote. the time for person political posturing are over. it's time to put our economy and country first. the risks we face are something too great. we don't need to take my word for it. more than 300 respected business leaders wrote to congress the night before last to make it clear how serious this crisis really is. a great nation like a great company has to be relied upon to pay its debts when they become due. they further said, this is main
street, not wall street. this is a main street issue, not a wall street issue. we're listening. it's time for the irresponsible voices in the republican party to continue to deny the truth of this crisis who aren't listening as well. >> house majority leader eric cantor, speaker john boehner and others in the house republican leadership spoke with reporters for 20 minutes. >> did you get here about an hour ago? i told the president his deficit increase could only pass the house if it includes spending cuts larger than the increase in the debt limits, that there's no tax increases attached to this and that serious reforms have to be enacted to restrict future
spending. and i can't think of anything that would do more to ensure such spending interest rates and setting stones than implementing the balanced budget amendment to the constitution. the amendment they will be voting on next week frankly is scommons. says the government conal spend what it takes in and places real limits on the ability to politicians to increase taxes or to increase spending. this common sense measure can only become a reality if enough of our democrat colleagues join us in voting for it and sending it to the state. the american people are still asking the question, where are the jobs? democrats said that the stimulus spending bill that they all voted for would keep unemployment below 8%. unemployment today is 9.2%. and after three years of trillion dollar deficits and the ongoing threat of tax hikes, job
creators continue to be frozen with uncertainty. so we need to stop the washington spending binge and help create a better environment for long-term job growth. a balanced budget amendment will help us do that. a balanced budget amendment will help ensure that the cuts that we make today are locked in for the future. and a balanced budget amendment will also give private sector job creators real certainty about what the future fiscal picture looks like from here in washington. i have long been a supporter of the balanced budget amendment. and i hope the president and democratic leaders will join us in making sure we can pass this and send it to the states. >> central to the discussion that's we have been having on the debt ceiling increase is how are we going to ensure that we're actually changing the system in washington? that we're actually going to change the way that we spend
taxpayer dollars? we're also very concerned about making sure we can go home with the people that we represent and tell them it has changed, that we are going to stop spending money we don't have and we're going to live just like the people of this country live in their homes, in their personal lives and in their businesses. the it accomplishes what we want, changing the system, getting the fiscal house in order. we can return to what the priority of this country is. >> 16 years ago, we faced the same question. we came one vote shy. now we are here today having a discussion. before i came, i'd turn out --
on cnbc. that vote have been different, we would not be having this press conference. it would not be the jobless report that we have seen time and time again. now it is at the time to restore the confidence. now is the time to correct the mistake. if there ever was a window of opportunity, we welcome everyone to join with us. there are many democrats that offered a balanced budget amendment. as of march, he welcomed it. we welcome everybody to join also. 16 years ago, we would not be going through this mess had been given this congress some adult supervision. this is the opera today to give the confidence back to this country and move it -- this is
the opportunity to give the confidence back to this country. >> president reagan said there were two things he wished he would accomplish. a line item veto and a balanced budget amendment. in 1997, the house passed the balanced budget amendment and it came when the board -- one vote short in the senate. one of the senators who voted for it, and joe biden. i talked about the importance of the balanced budget amendment. after i was elected, i had underestimated to what degree it was going to be difficult to change the culture here that was centered on spending, borrowing, and printing money. a balanced budget amendment will force congress to live within its means. force congress to set
priorities. i believe that this is so important of changing the course that we are currently on. it is important that we pass on the american dream to the next generation. >> he is presiding over the greatest gets challenged since the dawn of the republic. these are not ordinary times, these are extraordinary times and a demand an extraordinary remedy. the president wants us to help pay for his spending bench. since we started this debate, our message has been, mr. president, if you want our help to pay your bills, it is time to cut up the credit cards. the debate over the balanced budget dates back to the dawn of the republic. jefferson admitted that it was
not part of our constitution. we are on the verge of being the first generation in america's history to lead the next generation with a lower standard of living. winston churchill said that americans can be counted on to do the right thing once they have exhausted every other possibility. it is a humorous line four times that are not humorous. we have spent decades exhausting the other possibilities. the american family has to balance their budgets. companies that are trying to create jobs have to balance their budget. why would we expect that a great nation could continue on indefinitely without balancing theirs? it is time for a balanced budget amendment to the constitution of the united states of america. " 16 years ago, we came this close to passing a balanced
budget amendment and now don't you get the sense that we are approaching a national crescendo. the american people are looking at washington, d.c., and they are begging for leadership that is clear and forthright and fixes this problem. we have seen what president obama is able to do in the past by turning on the high beams and getting members of this party to vote for very controversial pieces of legislation along the lines of the controversial health care law. what we need is president obama to take a leadership role to engage members of his party in the house of representatives to pass this balanced budget amendment language. republicans alone cannot do it. it is going to take a 50 + democrats to get this done. we call on president obama to balance this budget.
>> i want to thank john boehner and the rest of our leadership team for moving forward on a balanced budget amendment to the constitution. it has very strong support, one of two that i have introduced. not my idea, it is not a new idea, in 1798, nine years after our constitution went into effect, thomas jefferson said, i wish it were possible to obtain a single amendment to our constitution. i would be willing to depend on that alone for the reduction of the illustration of our government. this is indeed what a balanced budget amendment is all about. coming up the credit cards. the american people understand the desperate 49 at a 50 states are required to do this. they expect us to do it here in washington.
>> everybody has a different reason why they run for congress. my first week here, i filed a constitutional balanced budget amendment. at that time, in the last 50 years, we have only balance the budget five or six times. we have not since i have been here. i was hopeful maybe that was a possibility. we had the debts commission as a possibility. i do not believe that it gets done in this environment and it has not for 50 years. 49 at a 50 governors have to balance the budget. the state of florida, they have lost three or $4 billion. they made the tough choices. we are incapable of doing that without a constitutional balanced budget amendment.
i applaud the leadership for their leadership on this issue. thank you. >> has a former state treasurer, who is tied to work with in a balanced budget amendment, where we have had to make the difficult decisions and have a tough debates, those decisions and those debates that we do not have today because we do not have the discipline. i think the only way to do which is to have it in our constitution. in 1995, the constitutional amendment passed the house with the necessary two-thirds vote. it failed and the senate by one vote. as the chairman of the balanced budget amendment caucus and the
house, with 70 members dedicated to taking a leadership role on the floor, to push this forward, i look forward to this fight. i look forward to this debate. >> i am only a freshman in -- they have been advocating this cause for much longer than i have. as a freshman, like most of my colleagues, i came here to structurally change the way this town does business. we have an opportunity right now to do that by not just accepting cuts, but by forcing this town to balance their books every year by structurally amending the constitution. i think it would be wonderful if we all could take advantage of this moment.
[laughter] >> harry reid said that [inaudible] you being there, at your present is undercutting mitch mcconnell. are you the reason why there is not a debt when it? >> i said turn to the speaker and have them comment. the speaker and i have consistently been on the same page. it is just as he laid out in terms of the principle that we are operating under. we are not going to raise the debt ceiling if we do not have cuts in excess of that amount, that we do not want to raise taxes, and that we want to structurally change the system so that we stop this from happening again.
harry reid is frustrated and the fact is, we are going to abide by our principles. i am sure the speaker joins me in that. >> we have been in this fight together. any suggestion that that the role that he has played in this meeting has been anything less than helpful is just wrong. we are in the foxhole. i will tell you what. this is not easy. what we are trying to do is solve a problem that had eluded washington for decades. i am glad he is there. those who have other opinions can keep them to themselves. >> mr. speaker, if the balanced budget amendment [inaudible] >> i do not know.
>> what do you think of mitch mcconnell? >> [inaudible] >> what do you think of this mcconnell's proposal? " he described his proposal as a last-ditch effort in case you are unable to do anything else. what may look like something less than optimal today, if we are unable to reach an agreement, it might look pretty good a few weeks from now. it is worth keeping on the table. there are lots of options. frankly, i think it as an option that may be worthy of something. >> do you regret saying things like, there is no deal that can pass? do you think that perot is an obstacle in the way of reaching a deal? -- the think that perot is an obstacle in the way of reaching
a deal? >> i have been in discussions for the last seven weeks. it is almost nine weeks total that we have been talking about this. the way i have approached and the same thing that i have done , it's right and see what can match up with the principles the and tos has laid out garner the necessary support so that we can avoid going past august 2 without increasing the debt limit. if there is a dose of pragmatism in all that we do, how will we ritchie of -- how will we achieve a result so we can deliver for the american people? as i have said before, the proposals that are on the table, given their current state, and what i know about where our 218.rs are, we are not at
we want to make sure that we avoid default. we want to make sure that we avoid past -- going past august 2 without raising the debt ceiling. >> if you continue to say that raising taxes is bad for the economy and the economy will suffer, but ben bernanke painted a dire picture today saying that it could throw the financial system into chaos. is the fault worse than raising taxes at this juncture? >> no one wants to see the federal government walk away from our obligations. at the same time, we have to do something about the underlying problem. that is spending. spending that is out of control. the president to and demonstration, are democrats colleagues, still are not serious about cutting spending.
that is the issue. we do not have a revenue problem. we have a spending problem. >> could be in the auto plan passed the house? >> i have note -- could be mcconnell plan passed the house? >> i have no idea. >> what do you think about that letter? >> it is pretty clear to me that there is going to be some discussion about who gets paid and who does not. we do not want to reach this point. there is no reason for this debate and this discussion to go past august 2. all it takes is a little courage to actually cut spending and put america on a path to fiscal sanity.
>> on the balanced budget amendment, in the four years out. that, there were surpluses. why is there a need for a balanced budget amendment when the balancing of the budget was balanced by four straight years? >> to make sure that it never happens again. look at what has happened over the last 10 years. an amendment it -- is in the constitution of 49 of the 50 states. trust me, it is not by accident. it would make sure that this problem never happens again. >> what has the president said to you when you told him about the balanced budget amendment? >> i do not recall what his reaction was. i did make clear to the president that if we are serious about cutting spending controls in place, there is no better constraint that a balanced
we did have a very good discussion. we appreciate tim geithner coming here to talk to the caucus today. i need to ask your lead that he be excused after he says a few words. we had a meeting at the white house and about 4:00 this afternoon. he has to go prepare for that. in a conversation, the secretary made one thing clear. august 2 is the deadline. there is no waffling from bats. there is note room to squeeze into another area. that is it. august 2 spread -- 2. we need to do something before august 2. in fact, we are already seeing
consequences. you folks look at your own publications, watched the news accounts today. credit rating agencies have already warned us that they are thinking about a downgrading us from our aaa status. moody's announced they are already planning the possibility that they will downgrade our credit rating if it failed to pay our bills. it is fairly frightening. this debate is not about new spending. this is about bills that are due for pre-existing obligations like social security, the troops we have in the field, or border security agents, are fbi agents, if we did not reach an agreement, we will have less than two thirds of the funds we need to cover these vital obligations. this could mean a lot of things
and you can figure them out as well as i can. seniors, soldiers, sailors, all of our troops, problems with our funding for kids to be able to go to school, law-enforcement. we need a reasonable balanced approach to cut spending and put us on a path to fiscal security. most republicans agree with what i just sad. unfortunately, there is a small group of republicans are calling the shots, who are putting their extreme ideology over the interest of families in nevada and all over this country. they are insisting that we cut seniors benefits instead of paying tax payer funded giveaways to billionaires', corporate jets, and things of that nature. they've gone so far as to say that we should doubt the words of the president of the united
states and the secretary of the treasury. the secretary just told us that he has had the good fortune not only to have a wonderful staff, but he -- but other secretaries have gone through thing similar to this and he knows all the work they have done. there has been a place and a library to pick out a book on what has gone on in the past. there is no wiggle room. moody's warned in yesterday's should serve as a wake-up call. anyone who doubts that the consequences we are talking about are real. it is time for all republicans to put the interests of american families ahead of this small group of ideologues within their party. >> thank you. thank you for giving me a chance to talk through this problem.
there is an energy in that room that we are a country that meet its obligations and that we will act and do what is necessary to make sure that we can maintain that commitment. we have looked at all available options. we have no way to give congress more time to solve this problem and we are running out of time. the eyes of the country are on a bus and the eyes of the world are upon us and we need to make sure that we stand together and send a definitive signal that we will take the steps necessary to avoid default. make some progress in dealing with our long-term fiscal problems. we do not have much time and it is time that we move. thank you very much. >> thank you, mr. secretary. despite the protestations of some politicians and presidential candidate, that the extension of the deficit ceiling
does not matter, you just heard from the secretary of the treasury. it does matter. the failure of the united states to extend its debt ceiling will be catastrophic for this economy and for the creation of jobs in america. i might say to my republican friends, they have manufactured a crisis over the debt ceiling. i guess to be a parent taking little kids into a shop and i always look for the sign that said if you break it, you own it. my message to the republicans were stopping us from extending the debt ceiling is if they bring this economy down, they own it. america cannot stand for that kind of political strategy. we need to stand together on a bipartisan basis and extend its debt ceiling. we have to work to deal with our deficit and dad in a responsible fashion. what i have seen over the five meetings, despite the patientce of the president.
it is time for the good of the american economy and for the future of business to put politics aside and solve this problem. >> secretary geithner reminded us today that republicans to deny the consequences of default are dead wrong. there is no way to move around money to delay the day of reckoning that would occur. there is no way to prioritize payments in a way that makes default in the less of a calamity. there are only bad choices. should we pay social security benefits or protect the border? should we keep doing cancer research or preserve medicare benefits? you cannot do them all. you cannot do more than 40% of them.
the credit rating agencies are already warning as the downgrade of the credit could happen after august 2, even if we prioritize payments to delay default. house republicans need to wake up to the reality and smell the coffee. taking these negotiations past the deadline is knocked -- is not an option. it is time for leader cantor to make some concessions. he is the only one at the table was not yet. john boehner entertained the grand bargain that the president offered. he has yet to make a constructive contribution to these discussions. more than anything else, he is holding knocked an agreement -- he is holding up an agreement at this point. >> secretary geithner made it very clear to all of us that we
are at an extremely serious time for our country. every family, every business will be impacted if house republicans consider this to be a game. this is real, every family with a 401k, has to buy gas, put food on the table. every business will be impacted if we default. not just for a few days, but for years to come. as democrats, we have said consistently, we are willing to compromise and move forward. it is pretty clear that we do not have a partner to compromise with and the house republicans. it is time for them to step up. everyone will be impacted. one group that i care deeply about is our veterans. to say to americans to have served our country so proudly that they will not get their benefits check because the games that are going on in capital is
wrong. it is time for us to come together and solve this and we ask the house republicans to do so responsibly. >> [inaudible] >> i sat with senator derbent fruit -- durbin through those endless meetings, and on the sea changes and starts being someone who contributes to a solution, the answer is no. he is not -- he has not been constructive and working out the problems that we have. >> what kind of changes do you need to cede to the mcconnell plan? is that something that could save the situation? >> i am in discussions with senator mcconnell and others. we are doing some negotiating. we're not there yet.
we're working on this with a number of different people. i am not in a position to tell you where we are going to go. >> [inaudible] this might not be a last-ditch plan, this might be the only plan. >> it is not the only plan. there are a lot of plans floating around all over. as i said yesterday, when senator mcconnell called me about this, this is not the first time that he and i have talked about problems relating to our situation from a procedural perspective. when he called me the other day, i told them that i appreciated his work on this and i would do everything i could to
try to be positive. we do not have it worked out yet. it is something that we are looking to do. hopefully, we can come up with this deal that we have been trying to get. until we do that, we have to look at other alternatives. his is one of them. >> [inaudible] >> it is interesting. i have been to a few courthouses. any time around here with the new tea party philosophy, they seem to think they have all knowing wisdom about the constitution. that i do not know how to say it more clearly than that. >> [unintelligible]
>> i am not going to get into a bunch of hypothetical. if i answered yours, i have to answer another 4500 hypothetical spree had i am not going to do it. that is another hypothetical. i will not be negotiating what we are doing. we have just a few hours, maybe a few days to work this out. as much as i believe in transparency, some of the negotiations cannot go forward in front of all of you. one last question. >> [unintelligible] >> as i said, i do not feel that is appropriate. those conversations should be private. i am not going to be doing it, not only because it would not be polite, but it could kill any deal we had. we will try to move this down the field very slowly. >> you mentioned a bunch of
things. [unintelligible] is there something that changes the dynamic of the group? >> that is what the president called us down to the white house again today. we will see what he has in store tomorrow. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> also on capitol hill, freshman republican senators said but that obama is using "scare tactics" in the debate over raising the debt ceiling. the president said he cannot deliver -- cannot guarantee delivery of social security checks after august 2.
this is a little over 20 minutes. >> we have one more. thank you for coming in on such short notice. we would have had more senators here if it were not short notice. this is pretty well started by a meeting that senator moran had in his office this morning. quite a few had a pretty good gathering. it is one of the first times as a freshman class we have gathered. we reviewed what it was like a with these last six months and come together as a group to figure out what we can do to figure out a solution to the problem. out of that came a number of suggestions. one thing we did discuss -- first of all, our disappointment at how dysfunctional and hell broke in washington is.
also, how disappointed we are this but it has failed to leave. bridge that obama finally got engaged on a personal basis in these talks over the debt ceiling and the bankrupting of america a week or two ago. from my standpoint, i take my colleagues share my view, if he were serious about tackling the problem, he would have been gauged months ago on a detailed basis. he would have put forward a budget that is serious as opposed to the budget he did present that lost in the senate. that is a stunning repudiation of leadership. one of the things i think we were most disappointed about was early this week president obama started threatening our seniors and our military personnel in terms of if we do not quite meet the deadline, he may withhold checks. that is offensive to us.
what we signed today calls on the president to please, step up to the plate, be serious, work with republicans to understand how urgent the problem is, who will work in good faith. let's prevent the bankrupting of america. as we try to do that, do not scare seniors. do not scare the military. we just ran last year. i am sure each and every one of us republican senators -- the democratic party, or decades, has used social security and medicare as weapons against us. we came here to solve the problem. we talked to younger workers, those workers to begin to the system. i talked to younger workers throughout the campaign. younger people are now 6 feet under. i ask them what they think they would get out of social security and medicare. without exception, the answer is always zero.
that is simply not fair. it tells me that we had a pretty receptive audience, pretty receptive group of people for structural reforms. i do not fear that we first have to admit our problems. the way to do it is not by scaring seniors or members of our military. with that, i will turn it over to senator moran to help to facilitate this practice. >> thank you very much. i am pleased to be with my freshman class republican colleagues this afternoon to express our support unanimously to send a message to the white house that in the process of sending this -- in my view, the white house is trivializing the concerns the -- americans raised during the campaign we just went through. throughout 2010, the conversation was very much about the debt, about our fiscal house, full instructions for us
to get things in order, even more importantly, grow the economy, which is significant component of us getting fiscal sanity back in washington, d.c. many of us here are supporters of cut, cap, and balance. we believe there is an additional component of that plan. we would add cut, cap, balanced, and grow. that means putting people to work. that involves significant changes in the regulatory environment, a tax code that is fair and certain, and my point to the president in signing this letter is that the vast majority of americans that spoke in the 2010 election were sending us to do serious work, to accomplish work for america, and ideas that we can revert back to the politics of -- as usual by saying sources security has the
possibility of not being paid. that is what the american people rejected. the president has fallen back into politics as usual. it diminishes the voice that americans spoke, the message they delivered in november 2010. i will yield to my colleague. >> a couple of things had been repeated over the last several days or months. a couple of things are absolutely essential to us dealing with this serious, serious fiscal crisis we are facing. enormous implications. one is presidential leadership. we have been calling for months for the president to get involved. get engaged in the discussion. he finally has. the second thing, the president needs to engage as president and not as a candidate for reelection in 2012.
we need to rise above politics. whether it is republicans or democrats if we are going to successfully addressed this problem. if we are going to position ourselves and not take responsibility for what may or may not happen on august 2 or august 3, position ourselves so that we can best the other side in the election of 2012 is not serving the american people. it is a great disservice to the future of america, our children, our grandchildren, and the world. we will not become the leader of the world by naturally or on any other basis if we do not step up to the plate and address this. i am pleased to join my fellow freshman year in the united states senate. i did we have just about everybody on board. we are sending a message to the president that we need him to lead in a responsible way, not
in a way that gives his political scare tactics in a way to persistent yourselves for the 2012 election. we are going to put what needs to be done for the country ahead of our political positions. we get the president will join us. -- we hope the president will join us. >> i frankly think the president should apologize for politicizing social security, or threatening not to send out checks. this would be his decision not to send out checks. it is objectively faults to say there would not be enough money. we bring in $2 billion a month. our interest payment is $20 million. social security is in the range of $60 billion to $80 billion. there is plenty of money to pay the interest, all the soldier's salaries. it is plain demagoguery. it is politics. our problems in our country are
too important to make a political football out of social security, are soldier's salary. it is demeaning to the office of the president and the country. he needs to leave or get out of the way. >> what is the probability is that a deal will not come by the august 2 deadline? >> the probability is far lower than it should be. again, at the president gotten engaged like a serious individual would be engaged -- i have had to produce a number of budgets on time for a variety of sizes of enterprises, pretty small to large. to think that the united states senate has not passed a budget in over two years, continues to miss these deadlines that have been enacted by law to pass the budget -- the united states budget is $3.70 trillion.
stated another way, $3.70 million million large. to think that we have a process that we have grown immune to in this country that seems acceptable that if we do not pass the budget that we allowed a few people meeting behind closed doors in a couple of meetings, that they are going to decide what the budget is going to be? they are going to decide the financial future of america? i think that is a disgusting process. it is bizarre. we have got to do things the right way around here. it should be done in public. we should be debating these issues in public. if we should not be scaring seniors and military personnel. that is just wrong. >> do you think the bill will come together? >> i am an optimist. we have been working hard. we have been going to the house and try to encourage the house members to pass the cut, cap,
and balanced piece of legislation that cuts spending first couple of years and then caps spending. we are talking about capping the growth in government. no one is talking about long- term cuts. we are talking about taking a budget and growing it to $4.70 trillion. the president of the budget would grow it to $5.70 trillion. there is a misnomer around town in terms of what we are actually doing. either we are eliminating the rate of increase. i think we need to seriously take a look at what is happening brigid's -- happening. >> are we talking about trying to prioritize military pay? [unintelligible]
the house is doing a similar type of thing. but the continue on the cut, cap, balance. it cuts, it caps over a long period of time, and then it actually gives the president what he wants. it increases the debt contingent by both chambers. what we are saying is we are willing to give the president what he wants as long as democrats will join us in passing a constitutional amendment to the states, to the american people. but the american people decide if they want to protect the long-term fiscal discipline. i say we give them that chance. if we give them that choice, i think they will agree to do that. let the american people decide. >> we enacted legislation. it would instruct the president to pay interest as a priority, social security as a priority,
and soldier's salary as a priority. we also have it as a bill. >> senator paul, are you suggesting it's a not be funded -- >> we are trying to suggest there are some priorities that should not. we are not want to pass eight social security check out. that is calculated political football. nobody up here is in favor of stopping the social security checks. we have enough money for that. we have enough money for soldier's salaries. we have enough for answers. unfortunately, there is not much beyond that. that should scare us. we have to do something differently. we have to get the economy going again. tax revenues are down, not because of the bush tax cuts, but went down in 2008 because of the recession. for years after the bush tax
cuts, revenues were still over 18% of gdp it is the recession that is hurting us, but the president's policies are accentuating the recession. >> the ratings agencies have not said it is credible that congress would pass something. the threat of the downgrade has happened. [unintelligible] >> i would like to talk about responsible leadership. a responsible leader would not be schering the american people. -- scaring the american people. working in good faith is not what has happened. in terms of the deadline, if we have something to worry about, it will be a self-fulfilling
prophecy. we have been roiling the markets for so long. the markets will be upset if things do not occur. i put that squarely on the back of the president's failure to lead. >> what do you think will happen on august 2 if we do not raise the debt ceiling? >> from my standpoint, and i am not sure anyone else agrees with me, but if we do not increase the debt ceiling what does that mean? we have to live within our means. according to the president's on the budget, will gain about $2.60 trillion in revenue. but that into context. 10 years ago under bill clinton, our entire federal budget was $1.80 trillion. $2.60 trillion is $800 billion more than we spent 10 years ago. it totally covers the debt. it totally cover social
security, like senator paul was saying. that leaves $1.60 trillion left to cover all essential spending. $1.60 trillion is only to wonder dollars billion less than 10 years ago. the problem here in washington is it has been business as usual. business as usual is bankrupting this country. that is the problem. that is what we need to attack. that is what the cut, cap, and balanced constitutional amendment would solve. >> i would say there are consequences to not raising the debt ceiling. i would guess a lot of others -- none of us know what those or. there are significant consequences to raising the debt ceiling without addressing our long-term fiscal problems in this country. ultimately there will be a financial crisis if we do not do the things our class is suggesting here today.
yes, there is concern about what happens on august 2, but we also had a similar concern about what happens next month, next year, the next decade if we just kick the can down the road one more time. >> we are walking a tight grip. in a thing we do can have dire consequences. i do not think any of us refute the fact there are great risk associated with not raising the debt limit, but we also acknowledged that if we raise it and do not do anything while we raise it, we do not do anything with any long-term, binding implications, that will produce some dire consequences for our economy and for our future. that is why we have presented a plan. it is not just the best plan, it is the only plan out there that has substantial public support for raising the debt limit.
but it has significant conditions attached to it, most notably, a balanced budget amendment to the constitution. which, by the way, americans overwhelmingly support. that is why we were so upset to hear the president say he is not willing to consider that. notwithstanding the fact that he, himself, has said we absolutely have to raise the debt limit and there will be dire consequences if we do not. the that being true, that being something he believes in firmly, one would think he would be willing to consider it, at least, as an option for raising the debt limit. but, instead, he decides to throw social security beneficiaries under the bus. they are merely the first ones we are going to cut. why are social security beneficiaries the first people for the president to warn about the consequences of not raising
the debt limit? each month we bring in somewhere in the neighborhood of $200 billion in revenue. with or something in the neighborhood of $150 billion. we pay out about $50 billion a month in social security benefits. there are lots and lots of other federal programs we could look to. let's suppose that if we were facing an imminent and unavoidable debt limit induced shortfall of revenue. what with the $50 billion debt we use every month to cover social security benefits be the place to start cutting? why would we ever start there, unless, of course, the only intent were to scare senior citizens, scare retirees to come to rely on this? but think that is cruel. i think it is inexcusable. i demand an apology and a retraction from our president.
>> he discussed the balanced budget amendment. are you concerned at all about the tax trap? we talk about raising taxes now. do you think any of the bold plans under senator paul will pass? >> i am not sure i understand your question. no. the balance a budget -- balanced budget amendment is agnostic as to how it balances. it is agnostic as to where cuts occur. it does not propose or require any particular course of action. ultimately we have to come to grips, in any event, with the fact that we do not have a revenue problem nearly as much as we had a spending problem.
one of the reasons i think we cannot expect to get our way out this deficit problem 3 tax increases is, historically, we discovered that we will collect about $18.50 -- 18.5% gdp in tax dollars. it has become known in certain circles as "hauser's law." the revenue hovers at around 18.5%. if we raised taxes, what we are likely to do in the intermediate and long-term is chill economic activity and hurt
economic growth. will connect -- collect less revenue in the long haul. it will be less than or equal to what we're collecting now. spending cuts or the solution. i do not think there is a serious argument to be made right now that we can get our way out of this very long-term problem with a very short term solution. >> one more question. >> can you tell me your opinion on the plan? >> that was a last resort. we are trying to come to a solution. we are hungry for success, not failure. we will continue to push a real solution to this problem. i just want to talk a little bit about what i fear. for more than what is it to happen on august 2, which, again, is a self-fulfilling
policy because of the administration moderate fear mongering. i fear the day of reckoning -- when we had exhausted all our options. when financial markets simply will not allow us any more money and we start having interest spite like despite the increase. -- like it spiked in greece. that would add $1.20 trillion to our interest bill. that is what i see. again, we need presidential leadership. our nation _ leadership and it is simply not getting it. that is what i fear. we are working towards a real solution here. let's get that thing passed. hopefully, the american people will put pressure on congress to pass a real solution. thank you.
"the library of congress." it airs this sunday night. we will show treasures found in airboats and special collections, including the original thomas jefferson library and presidential papers from george washington to calvin coolidge. learn how the library is using technology. discover hidden secrets in its collection. join us for "the library of congress close-" this monday night at 8:00 p.m. on c-span. if you look at every photo in the library, it would take over 24 years to see them all. >> in a few moments, a federal reserve chairman ben bernanke on the effects of failing to raise the debt ceiling. in a little more than two hours, more about the debt ceiling debate from grover norquist, president of americans for tax reform.
>> tomorrow morning, and a house energy and subcommittee books that pipeline safety. witnesses include a representative from exxon to answer questions about the pipeline spill in the yellow river. that is live on c-span3, friday morning at 9:30 eastern. >> american history tv highlights the 150th anniversary of the civil war. this week, historians of the events that led to the april 1861 attack on fort sumter. in two weeks, marked the forced battle of the civil war with 48 hours of civil war programming. the civil war, every weekend on american history tv on c-span3. >> federal reserve chairman ben bernanke says failing to raise the debt ceiling would likely mean higher interest rates, slower economic growth, and a larger national debt. he testified before the senate
the unemployment rate remains at 9.2%. the high levels of unemployment are matched by output best is significantly lower than it ought to be. cbo estimates of potential gdp shows that the economy is 5.6% below what it could be producing. of course, the housing market, which is an important source of wealth for many families in our economy, has yet to recover from the house price bubble. all the prices or down significantly from the 2006 peak level, inventories of vacant houses remained high and residential investment is below pre crisis levels. in addition to these economic
problems, there are concerns about how the european sovereign debt crisis will evolve and what effect it may have on financial markets and institutions. determining the best policy for such a set of economic circumstances is no easy matter. one thing is certain -- we need to put the financial market safeguards into place as an as reasonably possible. we must prevent a repetition of the events of 2007 and 2008. german bernanke, i look forward to your insight on it -- chairman bernanke, i look forward to your insights on these issues. opening statements will be limited to the chair and ranking member. i now turn to the ranking member, senator shelby.
>> thank you, mr. chairman. welcome, again, chairman bernanke. last month the open market committee announced the end of the second round of so-called quantitative easing, commonly referred to as qe2. chairman bernanke had claimed that because of qe2, we no longer have the inflation risk. the data seems to support your claim. for example, the 12 but change in the consumer price index reached 3.6% in may. inflation, however, reveals that the most challenging task still lies ahead. the federal reserve's balance sheet presently stands at about $2.90 trillion while the federal funds rate has been effectively zero for more than 2.5 years. as a result, i believe the stage is set for a resurgence of inflation if the fed is not real
careful. the task confronting the fed is out to unwind its massive balance sheet without sparking more inflation or damaging the economy, a real task in itself. unfortunately, the dismal performance of our economy and our record federal deficit will make this exceedingly difficult in the years ahead. chairman bernanke, i believe, must also contend with the consequences of the administration's economic policies. their failure to adopt a pro- growth economic plan or to restrain federal spending has effectively blocked the fed into a corner. if the fed is to curb inflation, it ultimately as to raise interest rates. the absence of economic growth will likely make it more painful for the economy. if the fed does not raise interest rates, inflation is almost injured. federal borrowing costs will soar.
that will worsen an already severely -- severe crisis. p last thing our economy needs is an inflation scare. the economic history of the '70s should have taught us that it is more painful to get a inflation under control than it is to keep the inflation in check in the first place. history also shows the fed's monetary policy remains to loose for two long. accordingly, our markets are watching to see -- too loose for too long. accordingly, our markets are watching to see if german bernanke's plant will work. this hearing gives chairman bernanke the opportunity to explain to the american people how the fed intends to navigate to this difficult time. in chairman bernanke last testimony, i was pleased that he explicitly stated the fed's price stability target is 02%.
today, i would like to know more about how you plan to achieve this target. for example, what is the acceptable range around 2% inflation target? it the fed thinks the recent escalation data will show inflation above 3% -- if inflation is above target, how does the fed plan to reduce it? in addition, i would like to note how the ongoing turmoil in the european union could in fact -- could a tight monetary policy here. will the jurors don't crisis but that -- euro crisis affects stability? the federal open market committee has terminated qe2. it has said it will maintain the policy of reinvesting principal payments by and existing
securities holdings. chairman bernanke's testimony further indicates that the open market committee may consider another round of quantitative in easing. as a result, the fed's balance sheet could easily lose way beyond $3 trillion. it appears the fed may be going in the wrong direction. recent federal open market committee meetings indicate that the fed is developing plans for addressing its balance sheet. i hope that chairman bernanke can't shed more light on the options the fed is considering and when the fed will begin this difficult task. finally, i would like to commend chairman bernanke on his recent decision to hold press conferences after the federal open market committee. this is an important step in recognizing that the fed can no longer make policy behind closed doors. the fed's policies will be more effective if they are understood and supported by the public.
this step also recognizes that the fed's siccative history of antiquated practices is an act -- that's antiquated history -- fete's history of antiquated history of- fed's antiquated practices based to stop. >> chairman bernanke, before you began your testimony, we want to let you know that i may have to excuse myself during today's hearing. the appropriations subcommittee -- i may need to be on the floor this morning as we began debate on this bill. senator reid will take over the gavel. chairman bernanke, please begin.
>> thank you, mr. chairman, ranking member shelby, and other members of the committee, i am priest to present a report -- pleased to present a report to the congress. i will start with current economic conditions, the outlook, and return to policy. the u.s. economy is continuing to recover, but the pace of expansion has been modest. after increasing at an annual rate of 2.25%, real gdp growth is at 2% growth in the first half of this year. incoming data suggest that the pace of recovery remains soft. at the same time, the unemployment rate is -- has moved back above 9%. in part, the recent weaker than expected economic performance appears to be the result of several actors that are likely to be temporary. notably, the run-up in prices of energy, especially gasoline and
food, has reduced consumer purchasing power. the supply chain disruptions that occurred following the earthquake in japan caused u.s. motor vehicle producers to curtail assembly. looking forward, however, the apparent stabilization of oil and other commodities should ease the pressure and a vehicle manufacturers report they are making significant progress in overcoming part shortages and will increase production this summer. in light of these developments, the most recent projections of the federal reserve board compared in conjunction -- the reserve board reflect their projection that the pace will pick up in the coming quarters.
projections that, if realized, would constitute a better performance than we have seen so far this year. fomc participants continue to see the economic -- economy strengthening with a real increase in gdp picking up to 3.5% in 2013. at the same time, the central tennessee for projections of gdp growth for 2011 and 2012 were marked down 0.5%, suggesting that participants saw first part of the slowdown as persistent for a while. among the head when space in the economy of the slow growth in consumer spending, even after accounting for the effects of energy prices, the housing sector, limited access to credit for small help -- poor households and small businesses, and fiscal tightening from all levels of
governments. fomc participants expect that over time the jobless rate will decline, yet slowly. the central tendencies forecast for the unemployment rate was 8.6% to 8.9% for the first quarter of this year, 7% to 7.5% at the end of 2013. recent data at the test to the continuing weakness of the labour market. the unemployment rate increased to 9.2% in june and gains in non-farm payroll employment were below expectations for consecutive months. but the more than 8.5 million jobs lost in the recession, 1.75 million have been regained. workers report that would like to be working full-time, but can only obtain part-time work.
nearly half of those unemployed have been out of work for six months, the highest ratio since the post world war ii period. this places large ships on the unemployed and their americans and leased to the erosion of skills -- this place is hardships on the unemployed and it leads to the erosion of skills. the ability and willingness of consumers to spend will be eight -- an important determinant for the pace of discovery in the coming quarters. gains were largely offset by higher prices for gasoline and other commodities. households report they have little confidence in the recovery and their own income prospects. the ongoing weakness in home values is holding out household wealth and weighing on consumer sentiment brigid household debt
burdens or declining. credit cards and other loans are down significantly. the number of homeowners having a more just payment for the first time is decreasing. the pickups in job creation should bolster real household income, cacophonous, and spending in the medium run. residential construction activity remains at an extremely low level. demands for homes have been depressed by many of the same factors that have held down spending more generally. mortgage interest rates are near record lows, but access to mortgage credit continues to be constrained. many potential home buyers remain concerned about buying into a falling market. the weak demand for homes, the substantial backlog for properties are keeping downward pressure on house prices.
two bright spots have been exports and business investment in equipment and software create demand for u.s.-made capital goods for domestic and foreign firms has supported domestic production throughout the recovery so far. exports increased solidly in the first quarter. orders received that the trend will continue in recent months. corporate profits have been strong. access to capital markets have been able to refinance. conditions for businesses have continued to ease, although the ability -- availability of credit has been limited for small firms. inflation has picked up so far this year. the price index for personal consumption expenditures rose at an annual rate of more than 4% in the first five months of
2011. much of the celebration was the result of higher prices for oil and other commodities in for imported goods. prices of motor vehicles increased sharply. most of the recent rise in inflation appears likely to be transitory. inflation is expected to subside in coming quarters and raise at or above 2%. that is consistent with our dual mandate of maximum employment and price stability. the central tendency for the rate of increase for the index was 2.5% for 2011 as a whole. in 2012 and 2013, the central tendency for the inflation forecast was 1.5% to 2%.
the substantial slack in u.s. labour and products markets, which is made it debacle for workers to obtain wage gains, and burns to pass to a higher cost. higher expectations are measured by surveys of households. turning to monetary policy, it is our judgment that the pace of the economic recovery will likely remain moderate. the unemployment rate will decline only gradually. inflation will subside. policy currently consist of two parts. first, the target range for the federal funds rate remains at 0.14%. the committee expects that economic conditions are likely to warrant exceptional levels
for an extended time. the second component of monetary policy is to increase the federal reserve's holding of longer-term securities, an approach -- long-term securities. the acquisition of longer-term treasury securities cause of longer-term treasury yields to be lower than they would have been otherwise. by removing substantial quantities of longer-term treasury securities to market, the fed's purchases induced private investors. the fed policy asset purchase program has served to reduce the yields an increase the prices of other assets as well. the net result of these actions are lower borrowing costs and easier financial conditions throughout the economy.
we know from experience that when the economy is operating below its potential, easier financial conditions tend to report -- can to promote economic growth. a number of recent studies suggest that all else being equal, the second round of asset purchases probably lowered interest rates 30 basis points. our analysis indicates that a reduction in long-term interest rates would be roughly equivalent in terms of its effect on the economy. in june we completed the planned purchases of longer-term treasury securities that we initiated in november while continuing to reinvest the proceeds. although we are no longer expanding our security holdings, the degree of accommodations is determined primarily by the mix of securities that the federal
reserve holds rather than by the current pace of new purchases. even with the end of net new purchases, maintaining our holdings of the securities continued to put downward pressure on market interest rates than would otherwise be the case. it is worth emphasizing that our program involves purchase of securities, not government spending. we will unwind those purchases. interest on the securities is being remitted to the u.s. treasury. when we began this program, we did not expected to be a panacea for the country but economic problems. however, developments with respect to both components of our dual mandate was needed. in that context, we believe that the program would help reduce the risk of inflation and provide a neat -- a needed boost
to the economy and job creation. the program had the intended attacks of reducing the risk of inflation in shoring up economic activity. in the mothballing the august announcement of our policy of -- in the months following the august announcement of our policy, we grew to more normal levels, suggesting that the perceived risk of deflation has receded markedly. this is a significant achievement. projected inflation it can be quite costly. with respect to employment, our expectations are relatively modest. the additional purchases could boost employment by about 700,000 jobs over two years, or 30,000 extra jobs per month. even including the disappointing ratings for may and june,
private payroll gains have averaged -- have averaged one undescended $5,000 a month for 2011. -- $175,000 a month for 2011. the comparison is 6 -- is consistent with our expectations for employment gains. will monitor the labor market closely. once the temporary shop that has been holding down economic activity passes, we expect to see stronger economic activity and job creation. given the range of uncertainty about the strength of recovery and prospects for inflation over the medium term, the federal reserve remains prepared to respond. on the one and come out the possibility remains that the recent economic weakness may prove more persistent than expected. we may need more policy support.
even with the federal funds rate close to zero, we have a number of ways we could look at these conditions further predicted -- further. initiating more securities purchases or increasing the average maturity of our holdings. we could reduce the rate of interest paid to banks on their reserves, thereby putting further downward pressure on short-term interest rates. our experience with these policies remains relatively limited. there is a potential risk in cost. we are required to examine the alternatives for employing additional stimulus. the economy could a ball in a way that could move towards an accommodative policy. the committee has been giving careful considerations as reported in the meetings of the
june meeting, it has reached a broad consensus about the sixth -- about the steps it expects to follow when the normalization of policy becomes appropriate. when economic conditions warrant, we will cease the reinvestment of principal payments on securities, thereby allowing the federal reserve balance sheet to begin shrinking. at the same time, the committee will modify the court's guidance in its statement. subsequent steps would include increases in the federal funds rate target. from that point on, changing the level or range of the federal funds rate target would be our primary means of adjusting monetary policy in response to economic development. sometime after the first increase in the federal funds rate charges, the committee expects to initiate sales of securities from its portfolio. this will be fully communicated to the public in advance. once sales began, it is expected
to be gradual and steady, but it could be adjusted up or down in response to material challenges -- changes in economic conditions. over time, the security portfolio is expected to be reduced to the minimum levels consistent with the sufficient sedimentation of monetary policy. of course, conditions can change. choosing the time to begin policy alimentation, should that be the next direction -- we will carefully consider both parts are dual mandate. thank you. i am please do take your questions. >> thank you for your testimony. we would now begin the questioning of our witness. please put five minutes on the plot for each member for their questions. -- on the clock for each member further questions. the fed has pursued policies to stimulate the economy. although the fed continues to hold short-term interest rates
near 0, it has ended efforts to reduce longer-term rates to quantitative easing. -- through quantitative easing. given the high rate of unemployment and the relatively slow growth -- slow-growth, -- >> our policies are already very highly accommodative. we have a zero interest rate. the continue to put downward pressure on interest rates in the market. i think the important point to make is that the situation today is somewhat different than it was in august of 2010 when we began to initiate discussion of burger purchases of securities. at that time, inflation was dropping. inflation expectations were dropping. it looked like inflation was becoming a risk to the economy.
at the same time, over the summer the recovery looks like it was appalling. we were down to 80,000 jobs per month. growth was not sufficient to prevent what looked like a significant increase in the unemployment rate. we felt that with both unemployment and inflation going in the same direction, monetary policy accommodation was needed. we took that step. today, the situation is more complex. inflation is higher. inflation expectations are close to our target. we are uncertain about the near- term developments in the economy. we would like to see if the economy will pick up, as we are projecting. we are not prepared at this point to take further action. >> your note that a fiscal tightening at all levels of government is one of the head winds facing the economic recovery. can you explain whether this means that additional short-
term fiscal expansion could help us return to full employment and increase overall confidence in the economy? >> mr. chairman, i think our fiscal planning and policy needs to be integrated in the sense that we look at both the short run and the long run at the same time. the congress and the administration are currently looking to make major changes in our spending. deficit projections over the next decade or so. i think it is important that we bring down our deficit so that we will have a sustainable fiscal policy going forward. i want to emphasize that is very important. at the same time, that is a long-term process. it needs to take place over a number of years. i only suggest that as congress looks at the timing and composition of changes to the budget, that it does take into account that in the very near
term that the recovery is still rather fragile. it could be damaging to the recovery. it is up to congress what further actions to take. i could suggest that there are intermediate steps between fiscal stimulus and cuts. that would be, for example, some focus programs on some areas of the economy that are particularly stressed, like unemployment or housing. >> as you acknowledge in your testimony, the economy is stubbornly depressed. residential investment is more than a third below its 1997 levels. inventory of homes that are for sale remain elevated. do you see policy solutions that would help resolve the problems in the housing market? >> mr. chairman, you are absolutely right that the weakness in the housing market
is one of the major sources of the slow recovery. normally in an expansion you see the housing market strengthening, adding jobs, and creating new opportunities. we are not seeing that, in part, because of the big overhang of foreclosed homes, which are weighing on prices. it is a vicious circle. there are a number of things we are doing. we are keeping mortgage rates globe. this works to try to modify mortgages. i think it is worth looking at that area. one area where more work needs to be done is housing finance. we have not begun to clarify for the market out housing finance will be conducted in the future. another area i suggest he might think about is the overhang of
distressed houses. for example, fanny, freddie, and the bank's own about half a million homes right now, which are basically sitting there on the market and which are pressing down prices and reducing appraisals and making the housing market much weaker than it otherwise would be. that is another area to look at. i agree with you that the housing market is, in some sense, the epicenter of the problem we're having at the moment. >> if there is no agreement on raising the federal debt limit, what would be the effects on financial markets and the economy if we were to default on our obligations? >> >> it would create a very severe financial shop that would affect
the u.s. economy and the global economy. treasury securities are critical to the entire financial system. they are used in many different ways. default on those securities would throw the financial system into chaos. in any case, what would be the case is that we would destroy the trust and confidence that global investors have in u.s. treasury securities has been the safest assets and the world. we are already seeing the threats of downgrades from ratings agencies. the quality and reputation of our treasury securities and real benefits from it with low interest rates. i would urge congress to take every step possible to avoid defaulting on the debt.
>> mr. chairman, tell us why our economy is not moving. our jobs are not growing. unemployment is going in the wrong direction. 9.2% is the official unemployment rates now. according to labor department, if you bring in people looking for a job, it is about 16%. that is very high. i think it does not bode well for the future to all of us. why is all of this -- is it just the housing bubble? is it the housing bubble, reckless lending that puts a lot of our banks in jeopardy?
tell us what it all is and how do we get out of it? is it reckless spending? >> that you have almost answered your question. >> i talked about the disaster in japan and the developments in the middle east. we do think we will see some much better growth, although forecasting is very difficult going forward. it has been a very slow recovery and there are a number of reasons for that. one is the aftermath of the housing bubble. so many houses are empty and prices have fallen so much and that has created no new construction and housing. people have lost wild because they no longer have any equity in their homes. -- lost wealth because the
gun have any equity in their homes. it takes time -- because they no longer have equity in their homes. there are still some areas that are constrained to some extent. the consumer has been very cautious trying to build back up their wealth. they are concerned about the durability of the recovery and about their own financial prospects. even though the high price of gasoline and food has taken away some purchasing power even beyond that, confident is pretty low and consumers are not showing the confidence in terms of spending. in the near-term, there is withdraw all of fiscal stimulus -- the job numbers last friday, for example, the private members were better than the headline
numbers because part of this report was a loss of 40,000 state and local jobs. those governments are being forced to contract. it is all perfectly possible -- that is perfectly understandable. in the short run, as jobs are lost and not replaced elsewhere, it creates pressure on the economy. >> are you basically telling us that we are not going to have a robust recovery in the next six months, eight months, 10 months? >> we are expecting improvement, but we are not expecting something like would normally follow a recession. >> let's talk about the european crisis for a minute. we're all familiar with this to some extent. greece, portugal, ireland, italy, others, it seems to me that they are sitting on a
financial-related time bomb over there. do you believe that the european union will stay together? canid stay together with some smaller countries -- had it stayed together with some smaller countries that will never pay their debt back? what will happen? how will it impact us? >> first, the european leadership places a great value on maintaining the euro area and maintaining the euro political integration which has taken place in the postwar period it. they are making extraordinary efforts to address these problems. the problems are not entirely economic. the three countries that you mentioned are a small part of the economy. they involve how are you going to address these problems in these countries. one approach is to try to do it completely through austerity, to have the countries cut and cut
and see if they can make it. another strategy would be to get more direct assistance from other countries, but that is very unpopular. >> that is not a solution to the problem. >> if the better off countries were to basically helps solve the problems of the small countries, it would solve their immediate issue. there need to be structural reforms and so on to make sure the country stay on a healthier path in the future. there are different ways to approach it. it is really a political issue as much as an economic issue. it is causing a good bit of anxiety in markets and that has been affecting our economy both last summer and recently as well. we are spending a lot of time
evaluating the exposures of u.s. financial institutions to these countries, including money- market mutual funds, the direct exposure to the three countries you mentioned are quite small and manageable. we would not expect those direct impacts to be the critical channel if there were problems, a default, for example. nevertheless, the u.s. economy is at risk from those developments because we're there to be a significant deterioration in conditions in europe, we would see a general increase in risk aversion, declining asset prices, a lot of volatility in the market. >> thank you, mr. chairman. >> thank you very much, mr. chairman. following that senator johnson's question about the fault --
default on our outstanding obligations, some have suggested that if we cannot resolve the debt ceiling limit, we simply prioritize payments. that requires us to not pay on things like military pay and social security. just in the context of the financial sector, up with that fix the problem? -- would not fix the problem? >> it is the treasury's area to determine how they will manage this. they had been pretty clear that they do not think it is appropriate or feasible to prioritize. as the fiscal agent, the federal reserve simply does what they tell us to do. there are some operational issues that arise if you were to
try to do it. the treasury is the determinant of this and they are pretty clear that they do not think it is a workable solution. that being said, whether the fault is -- whether the default is on securities or payments we of medicare recipients, it will constitute a default of some type on obligations incurred by the u.s. government and it will certainly have an impact on both the economy and on confidence. what inference should investors take from the fact that the u.s. is not paying its bills and that it cannot resolve the issues? there is not really any solution other than finding a way to solve these problems to address the fiscal issues and to raise the debt limit at the appropriate time. >> let me explore a little bit. that theys suggested
are putting us on a watch, what is clearly behind them if that we do not get past the debt limit ceiling, they will downgrade us. not only u.s. treasuries, but moody's has indicated fannie mae and freddie mac paper and we have also placed a possible downgrade securities -- essentially, they will downgrade things we do not even know yet. maybe you know. what does this do in terms of interest rates across the board? raise them? >> the combination of downgrades, but we are already seeing it, by the way. loss of investor confidence could potentially raise interest rates quite significantly and
the erotic aspect is that we're all interested in reducing the deficit, if you raise interest rates, your interest costco up substantially and you are regressing rather than progress in. >> a failure to raise the debt ceiling would be the most significant immediate increase in the deficit that we're likely to see. the one act that would dramatically increase the deficit. >> it would be a self-inflicted wound. >> let me ask about something else. as you have talked about fiscal crisis and jobs crisis, what is your perception in the scenario about jobs? are we likely to see people going out and hiring? >> we have a recent example. in 2008, when the financial system froze up, we saw a contraction of the global economy. even if things did not get that bad, it is hard to predict what
is going to happen, but if interest rates rise, that will clearly reduced investment on certain -- reduced investment. if the government is reducing its payments by 40%, that will have an impact as well. i could only conclude that this would be very bad for jobs. >> another area we discovered was a huge and explosive problem. that was the situation of derivatives. i would presume that there are a lot of credit default swaps written on many of these securities, etc., and if they are downgraded, that could be a condition of default. that could require additional collateral. do you have any idea on the institutions that you regulate
potential exposure they would have as credit ratings fault? or if there is a default and the market? >> there are many knock on a facts from default. ratings throughout the entire system. cds directly on treasuries as opposed to other securities are actually not that big. it would take an action to invoke the credit event. that could be a problem for some institutions. but it would not be the biggest problem. >> but your point is that this could be a self-inflicted wound doing more damage to the deficit down has been done to date? >> it is not an option that we should be considering. >> thank you. >> thank you, mr. chairman. i will follow-up on this for just a moment and then i want to move on to some other issues. to make the observation that the
market perceives and consequences are starkly different between the u.s. government failing to make an interest payment on a bond or on the other hand, bloating some -- delaying the reimbursement to a vendor or failing to cut the grass at the monument. these are very different events. the month of august has scheduled about $30 billion of interest payments. the treasury is sitting on a $94 billion portfolio of mortgage- backed securities. we expect a minimum of $125 billion in tax revenue. i did not know if anybody -- i have argued that we certainly would be much better off reaching an agreement and raising the debt ceiling prior to august 2. but there is a big difference between a payment default on our debts and the other kinds of payment disruptions. i think this administration would be wise to send an unambiguous message to the
market that under no circumstances would they tolerate a default on our debts, which is entirely under their control to prevent. i acknowledge that that is the realm of the treasury and it is not irresponsibility. what i would like to address is what is under your round. -- your realm. the things you have done under difficult circumstances have only had the best motivation, but i am concerned about the expansion in power of the central bank. the unusual step that we have taken, the enormous discretion that the fed now has and exercises. my concern is that this distorts markets intentionally and also introduce is enormous uncertainty as to how the fed will behave. the fed becomes the biggest player in driving the bond market, the equity markets, and this is a dangerous place that we have come to and i hope that we revert as soon as possible to the more normal role that the fed has played. one of the unintended
consequences of this unusual policy seems to me if we take the very low interest rates, it seems to me that this contributes to enabling congress to run excessive deficits. our debt is cheaper to finance. the treasury has chosen unwisely. the net effect is that we are not yet paine the real market price -- paying the real market price for this huge debts. i do not think that is your intention to facilitate this fiscal irresponsibility, but it is the unintended consequence of these extremely low interest rates. that is just one example. to your testimony, you've raised the possibility that if economic
circumstances warranted, you would consider it opened the door to an additional round of securities purchases. my concern is that what is wrong with this economy is not fundamentally monetary policy. it is other things. i would just ask you to comment on what you see that is wrong with our economy that qe3 with six. what is your theory that another round of securities purchases would generate the economic growth that we lack? >> to go back to facilitation issue, our goal is to try to meet our mandate of maximum employment and price stability. that is why we monitor monetary policies. i do not think our policies would bring about a lack of
confidence. >> people still think that they have confidence in our government's ability to make its payments. these asset purchases, i recognize they are unconventional. they work more or less in terms of the effects on the economy, they work and the same way ordinary monetary policy works. you may be entirely correct that it might not be particularly affected given the configuration of problems that we have. credit is not being extended. or the problems rise from other sectors that are not responsive to interest-rate. those are things they will take into account, senator. we're not proposing anything today. the main message is that this
is a serious situation. it involves significant loss of human and economic potential. the federal reserve has a mandate and we want to meet that mandate and to do that, we want to make sure that we have the options when they become necessary. at this point, we are not proposing to undertake that option. >> thank you, mr. chairman. >> thank you, mr. chairman. good morning. i appreciate you joining us again today. i want to thank you very much for your strong leadership. you continue to do an excellent job under very difficult circumstances. we all understand the importance of preventing a government default. many americans, however, seem
not to share this urgency. a gallup poll in may found that only 19% of americans would want their member of congress to vote for a debt ceiling increase. 34% did not even know enough about the issues to answer the question. americans are more concerned about controlling spending than they are about the government default. we do explain how a government default would affect the everyday lives of working-class americans? >> i would be glad to.
" that is true for the long run. the debt ceiling is really about pain for bills that we have already incurred. putting that aside, not increasing the debt ceiling and allowing default on the dead would have very real consequences for average americans. interest rates would jump. treasury rates are the benchmark of interest rates.
if the treasury cut back as it would be required to do, it would mean that there would be a significant reduction in both the payments and benefits, payments for services, so people would see that in terms of their medicare check or whatever other benefits they are getting. without much delay, this would also slow the economy and the job situation will get worse. in almost every area, where people have concerns, all of those things would be affected in relatively short order. >> thank you for briefly explaining all of that. chairman, it even though home prices have only slightly
declined, high-cost housing areas like hawaii are still feeling the full effects of a week housing market. mortgage credit is still limited and the concern for the future is that mortgages are performing worse than those backed by the government. below midst -- allow limits are scheduled to step down later this year. do you think it is a good idea to allow the limits to decrease? how might lower limits might affect the housing market and ownership opportunities?
>> it is time to began to lean a little bit of the mortgage markets from those higher performing limits. to what extent, how are they priced? there has been some improvement in the willingness for banks to make jumbo loans and the differential is much closer to 25 basis points. it will impose an extra cost on borrowers of very large mortgages. i do not think they will be squeezed out of the markets.
>> i have three quick issues i want to raise with you. my understanding is that according to richard marcus in august 1989, we had a default april 26, 1979 when the united states could not pay individual bondholders holding treasuries on time. 60 paces -- 60 basis points to the federal government. when we defaulted last time, 1979. i understand that italy just try to borrow money twice today. they are a five-year benchmark, had a 21% increase in the cost
of borrowing. it just went out at 4.9%. they set a record on their 15- year borrowing. they paid the highest interest rate ever and we are seeing a decline in italy. should we have a kind of greek- style bailout for spain and italy? the congressional research service estimates that the imf is 60 the -- the imf is $50 billion short. i am worried about long-term finances of illinois and california. given their pension liability, ill. being the lowest paid pensions in the united states, do you see a systemic risk posed by these two states to the municipal finance of bond sector?
>> thank you. it is true that in 1979, mostly because of mechanical problems, operational problems, there were a few treasury bills that did not receive interest rates -- interest payments on time. industry did go up, but it is not entirely clear whether it was due to the default or whether it was due to some other factors. i do not think it is comparable to the current situation because this was a couple of isolated issues. the wall street journal did not even reports that this had happened. it was not viewed as something that was as broad base risk to the financial markets. on italy, it is true that there has been some market jitters there. the kind of concern that you worry about is exactly this kind of vicious circle that we are worried about in the case of the united states where loss of
confidence raises interest rates. it makes it difficult to get fiscal stability. my sense of italy is that the first line of defense is for them to take the necessary steps. it is true that they had a very high debt to gdp ratio. but it does have some strengths. it currently has a primary surplus that has -- so its fiscal position is much better than greece, for example. its banks are in decent shape. they have taken some extra capital in recently. it has a well diversified economy. the first line of defense there will be for italy to try to address the concerns that the market has.
in terms of explicit that, states don't generally have the same kinds of levels of debt that the federal government or the european government have. they rely on federal money for social security, medical care, and other things. there are some states that are having more difficulty. we watched those very carefully. we also looked at the exposures of banks and other institutions to those states. we do not see any immediate risk there, but it is true that a number of states do need to be thinking about their longer-term step -- sustainability given the unfunded liabilities they have four state pensions and health care programs as well. but we are monitoring that situation and we do not think it is analogous to the european situation. >> what about the adequacy of the imf?
are you concerned that we will run about 50 billion short? >> spain and italy are much bigger economies than the three that have already been addressed. in that case, that if we came to that point, and i do not anticipate that happening, but i think the europeans would have to make a very substantial contribution to stabilizese [in] thank you very much, mr. chairman. nice to have you with us this morning. i would like to ask you about our job situation and our recovery and their interrelationships. we have a jobless recovery, by many people's estimates. even as the economy seems to be getting better, and profits and
corporations are stronger, hiring is not been what we wanted it to be. wages are not what we want them to be. the wage picture, in particular, is disturbing because the average wages in this country has not moved in many years. as companies continue to progress and not higher, what we're finding is that they are able to do business at a higher level with the same number of -- same number of employees. in some cases, fewer employees. i am asking myself, how do we turn this around? when will this get turned around? in other times, there was a much more direct correlation between economic activity and rising profits and growth and hiring and wages. they did not seem to have that connection today.
i would like to comment on that and what that portends for us even as a business is gets better. >> i can only agree with your diagnosis. we have high unemployment that is improving very slowly in terms of jobs three games. it has the potential for a very long run consequences because of the long-term unemployed. those folks are going to find it much harder to find new work or work that was comparable to the work they had before. wages are very stagnant and that is affecting consumer confidence. i agree completely. this is a major problem. there has been a tendency in the last 20 years or so for recoveries to be more jobless in the earlier postwar period. we saw the same thing in the 1990's and the beginning of the last decade. there's a little bit of an irony
here, which is productivity gains are a really good thing. it helps to make a country rich over time. over short periods, in this crisis over -- a lot of firms got scared and they reduced their labor forces. in doing so, they increased productivity remarkably, but given below levels of demand, and ease their demand for workers is not as strong as we would like. there is also ongoing uncertainty about the durability of the recovery and about the economic environment, including fiscal issues that we have been talking about. if i had the answer, i would give it to you. the federal reserve has been providing as much accommodative support as we can to meet our dual mandate. i do think it would be worth congress looking at some
specific issues related to the unemployed. i am concerned about the long run implication of the long-term unemployment. are there things that congress could do to help people improve their skills? or to find more opportunities? those are questions that could be passed. >> it is troubling that wages have stagnated. unless they can find a way to turn that around, we are looking at a troubling future, to say the least. the economy is driven by consumer demand and if wages are not increasing in spite of a stronger economy, we are facing a very troubling future, wouldn't you say? >> it is a 30-year trend. one part of its is skills and preparation. we have a globalized, highly technological society and those
people who are prepared for it can do very well. it used to be that if you had a high-school education, you could have a decent job. but that is not the case. we will have to address those education deficit and help people get the skills. >> consolidation of the banking industry is not new, but it is something that i am thinking about at this time. it has been purchased as a national bank. one concern i have with larger banks moving into wisconsin is what impact that will have on local customers, small businesses, and farmers. we have seen evidence of mergers of small banks can be good for small business, but when a large national bank buys the smaller bank, small-business loans tend to decrease. as more national banks acquired
regional banks, what can we do to see that they keep lending to small businesses? if the federal reserve looking at the impact on lending to small business and farmers? >> yes, we are. we on the department of justice are typically involved in approving mergers and acquisitions. we do that, one of the key exercises we do is that we looked at the resulting concentration of banking services would then build local area. we want to be sure that when taking into account all of the banking services and others that are in that area, that any merger or acquisition does not create a situation where one firm dominates that market. we do pay a lot of attention to making sure that this competition, that consumers and businesses have alternatives to go to within their local market
when we approved those mergers. it is true that larger banks have been not as forthcoming but small businesses. some of local -- we see a lot of advantage for community banks. we are very supportive of community banks. we have a subcommittee in our supervisory function that looks entirely at the implications of new rules and regulations for smaller banks. we tried to do whatever we can to minimize the burden on those banks. we will do our best to support that goal. >> thank you very much. >> mr. chairman, good to see you again. mr. chairman, as we have been working through the challenges of the debt ceiling and august
2, i have been trying to do as deep a dive as i can to understand the cash flow in the financial requirements of the united states government. i am hoping i can use my five minutes to offer some insight on that, but i would like your reaction to a couple of things that i think i have identified that are enormously important. the first thing i looked at the indebtedness of the united states to the treasury. and onasury's we issue, august 4, we need to roll over $90.8 billion. august 15, $26.6 billion.
let's say that for whatever reason, there is no solution to this issue through august and we are constantly in the market, as you know, trying to deal with the treasury situation. we have these that we have to rollover. what is the market reaction going to be just in terms of this? it seems to me that if i were a big trader in treasuries, i would want a better deal. i would want something from the united states government because all the sudden, there is an element of political risk that has been injected that maybe there won't be enough consensus to deal with this. >> you are absolutely right. i know what -- we know what our interest payments are going to
be. but we have to roll over large amounts of treasuries and it could mean that if investors demand higher interest rates, it means that we will be short. the price that we will pay will be less than we need to borrow. that is another source of the uncertainty in terms of what we will go to -- what we will go from the coffers of the treasury. yes, it is very uncertain. we are seeing the downgrade threats and so on. it is entirely possible that a loss of confidence or political rest -- risk could raise interest rates and would make it more difficult or more expensive to rollover the debt going forward. >> in terms of that rollover, my understanding is that we cannot
avoid that. in other words, as these dates come up, we have got to deal with it. is that a correct assumption? are there alternatives that i did not know about? >> when the principle comes up, we have to roll it over or sell other bonds to meet that amount. >> ok. the next piece of this, and there is so much discussion out there about whether the treasury could do this and social security recipients will get paid, or whatever the latest point is. i was looking at an analysis that was done for august. it anticipates revenues of 172.4 billion. there could be some give-and- take on that. outflows for requirements of
$306 billion. obviously, we know we are borrowing 40 cents on every dollar. less is coming in then we have obligations for august. i looked at the requirements, interest on treasuries, 29 billion, social security, 49 billion, medicare, a 50 billion, a defense payments, 31 billion, unemployment benefits, 12 billion. if you just paid those items, you would spend $172 billion. you would have spent the money that came in. since we have not raise the debt ceiling, that is it. there is a list of items under that better not getting paid any might move some of those up, but it is pretty awful. veterans affairs, we have not made payroll for the federal government, that does not
include military pay, although many would argue that it should be above aligned. how would the market regard us -- let's say we can deal with this treasury issue, how what deaver -- how would the market regard as not paying this long list of other financial obligations? they are not securities, but they are financial obligations. >> nobody knows with certainty. that is part of the reason why we should not be taking this risk in the first place. it seems to me that it is reasonable to expect that a government that shows it is unwilling to pay its bills would engender some distress and the markets. we would still seek some response of interest rates and increased financial volatility. once again, this is hypothetical discussion because treasury
takes the view that is not appropriate or feasible to prioritize. >> i just will wrap up with one last comment. my time has expired. for me, this is mathematics. it is not magic. my hope is that between now and whenever date, the treasury, you, others will descend upon the hill to do what i have done. to avoid some of the discussion that, quite honestly, maybe is not fully accurate. i do not want to accuse anybody of anything, but this would be very helpful to understand the mathematics. thank you. >> mr. chairman, i do not mean this in a technical sense, but isn't there a huge risk if we
announce to the world that we cannot raise the debt ceiling that we are so politically dysfunctional that there is no plan that the market would treat our lack of payment on any of these obligations and you would see interest rates rise very quickly as a result? >> again, nobody knows for sure, but that is a possibility. >> it is a political risk. no mayor would ever threatened to jeopardize the credit rating of this city. he would be run out on a rail for doing it. we find ourselves in this position. i want to ask a question. by the way, we are not focused -- it is what the people in my state want to know. how will we create an economy
where the median income is falling in -- is rising instead of falling? moody's said yesterday that it an actual default, regardless of duration, but fundamentally altered the assessment of the future payments and the triple a rating would likely no longer be appropriate. can you remember the last time a credit rating agency plan to downgrade u.s. debt? >> it happened recently. >> it happened recently in the same context. >> the current context, yes. >> but was the last time before this debate about raising the debt ceiling? >> i do not think that it has happened in the 20th century. but i am not certain. >> we are now in the 21st century.
can you think of an asset that is more important to us that our credit rating? >> there are many assets, it is a tremendously important that we have the confidence of the world in terms of willingness to hold treasuries to maintain a liquid market. the stability of the dollar. it is a very important assets. losing that credit rating is a self-inflicted wound. >> mr. chairman, it i am confused about the clock. did we reset it? thank you. story. -- sorry. i want to come back to the question of what the effect of
losing that credit rating would be. not on our interest, because reno -- because we know the effect would be devastating. the effect of people living in the state of colorado. you generally talk about low interest rates, but if you can specifically say to people, what does it mean to me when i go to buy a car or to get a bank loan or to buy my house? what is the effect on me if people wake up in august of 2011 and our debt has been downgraded by these rating agencies and we do not have a political path forward to address the problem? >> treasuries are the benchmark securities. most other interest rates are priced off of treasuries. if treasury yields were to go up by two percentage points, you would expect to see mortgage rates go up by two percentage
points and likewise with other borrowing costs would firms and household face. there would also be an impact on the economy, which would affect jobs and consumer income as well. >> what do you mean? >> higher interest rates, uncertainty, fiscal contraction, higher unemployment. >> it will lead to higher unemployment. the unemployment rate is 9.2%. can you think of a greater self- inflicted wound that we could manage to accomplish that drive our unemployment rate higher? >> we do not want to take an action to threaten our credit rating or to drive up our interest rates. it is counterproductive to the goal of reducing the deficit. >> that is where i was going next.
if all of you cared about was our deficit, which is of huge concern to me. i have kids and i am worried about and we have to get a hold of it, we really do. in a bipartisan way. can you think of anything that would be more destructive than my desire to pay down our deficit than to failed you raise the debt ceiling? >> you tax my imagination. >> even economists have imaginations. in all seriousness, i am deeply concerned about the fiscal condition of this country, i am deeply concerned about the size of the deficit, can you think of anything i could do that would be more problematic than jeopardize our credit rating? >> that would be a very negative
thing. by the way, this is happening at the same time that europe is dealing with fiscal issues. there is a lot of uncertainty. >> exactly. here is the last thing. we are just emerging from the worst recession since the great depression. we went into this recession, straight off the cliff, a lot of people could not see that it was coming. how do you assess the risk that if we didn't of driving this car over the cliff with their eyes wide open, we could see a downturn in our economy at a point when our deficit is already at 1.5 trillion, when your balance sheet is now $3 trillion.
this economic crisis could be at least as bad as the one we just came out of and the policy responses that are available to you and to the treasury and to the congress are actually more limited at this point because we are still recovering from the last crisis. can you talk about through a little bit? what would it look like on the other side if we do get to a place where we find ourselves in this oddly predicament -- ugly predicament? >> if you make -- you make an additional point. the higher interest rates would add to the deficit and a slowdown in economic activity would further add to the deficit. it really is going in the wrong direction in terms of fiscal stability. >> thank you, mr. chairman. >> mr. chairman, thank you for being here. i will continue to use you as a prop to make our own points.
thank you for your willingness to participate. the fact is that all this talk about the debt ceiling is a farcical at this moment. i think we all know that our leadership has concocted a scheme where folks on the other side of the aisle can allow the debt ceiling to increase and continue to appeal to their constituencies for the 2012 election and on our side, we can continue to cause spending to be an issue for us in the election. by concocting this scheme, we are not going to make any tough decisions. we all know this. let me move to the other side of desperate it is evident that the debt ceiling will be increased. it is probable that not much is going to occur as it relates to spending. i would say that people outside of this if people have to be waking up at some point when we go through this short-term hurdle.
on the other hand, if the u.s. government does not do something as it relates to spending and the credit rating agencies -- would you agree? >> i want to be clear. the debt ceiling needs to be addressed, but we also do need to address the sustainability of our fiscal position. >> since you are a prop and you are answering the way we all want you to answer, i guess the debt ceiling is probably not the best place for us to deal with this issue. what is the best place for congress to actually deal with issues of spending? >> to the legislative and consultation process. >> is it called the budget? >> except for one thing. >> the answer is supposed to be yes.
>> we would need to think about this in the current year. >> i agree. we basically -- i do not know what the most common joke is around the fed. we basically have been sort of feckless members. the united states senate has caused this great nation to be in decline because we are not willing to deal with the tough issues. some people resorted to the debt ceiling and that is obviously a political solution backed helps both sides campaign. 2012. the fact is that we have not dealt with a budget now for some time. the majority party could be
criticized for that, but i do not want to do that. i think both sides are critical because we are moving to a spending bill today without a budget. this has been a lot of fun for everybody to use you as a prop for the debt ceiling. we are pawns in all of this by allowing our country to continue to spend money our leadership has wanted to protect us, so we have to make tough decisions when we budget and prioritize. in order to protect the majority, we did not go through that process. how do think the financial analysts view our inability to make those tough decisions? >> as i indicated, i think they view this whole situation as
being a political issue and not an economic issue. the question is whether or not we can come together and find real solutions. some of the discussions that have been have suggested that some very large scale fixes could be undertaken. i am not prescribing one or the other, but we have to do something very significant to keep our debt to gdp ratio from rising. after that, we have entitlement issues as well. we need to do something big. >> i dinner monday night with a number of my colleagues from both sides of the aisle. call complaining about how dysfunctional this place is. yet today, i will use this opportunity to point out that we are moving to a spending bill without a budget. any of us to complain about how
dysfunctional the u.s. government is today and the fact that the senate is moving our country into decline, who wouldn't vote for a spending bill without a budget are accomplices. allowing us to move toward that place that you were talking about where the credit agencies are going to be downgrading us because we do not make tough decisions. my time is up and i appreciate you -- there's really not much to talk about other than what we put forth. i do want to close with this. thank you for your service and i respect you and i appreciate the way the fed has been very open, very transparent. you have shared confidences with me that i have kept confident. i have appreciated that. i will tell you that i find the
activism at the fed right now a major turnoff. i am very concerned, and does one person -- i want to tell you that i am quickly moving to a camp that wants to clip the wings of the fed because i do believe that the activism their is distorted of the market. i believe that the dual mandate that we set up is causing you to do a lot of things that are going to create some long-term damage. just know that while i respect you, and i respect the people who work with you at and i appreciate the kindness, i am extremely turned off by your activism. >> thank you again for your service to our country. uni